Renewable Energy Market Focus: Germany
Germany is one of the world’s biggest renewable energy markets, but concern about the rising cost of low-carbon subsidies has led the government to rethink its support for the industry. Rachel Parkes reports her findings in Part I of this feature.

Feature

Renewables market report on China: Eye of the tiger, Part II

07 July 2015Rachel Parkes

In Part II of her feature on China’s expanding renewables sector, Rachel Parkes discusses the Chinese drive to renewables, and the challenges it faces in trying to meet its growing demand for renewable power.

The Chinese government’s zealousness in promoting renewables partly has its roots in a growing anxiety about the environmental effects of economic growth. China is now the world’s largest carbon emitter, increasing its emissions by 50% as its economy began its extraordinary growth in 2000–2005.

By 2007, when the government embarked on its first low-carbon strategy, China’s particular vulnerability to the environmental costs of economic growth, including severe desertification as well as water and air pollution, was becoming apparent. Indeed, Beijing is now one of the world’s most polluted cities, with the blame firmly pegged at the door of coal-fired power generation.

Fears about energy security

But while pollution concerns are certainly paramount, they could be solved by fuel switching to natural gas or, if funds allowed, nuclear. So why renewables? According to Xin Li, a research fellow at the Oxford Institute for Energy Studies (OIES) in the UK, the principle driver for China’s renewables push lies in fears about energy security, specifically China’s dependency on fossil fuel imports.

‘The government is always worried about these situations,’ says Li. ’There is a huge amount of oil consumption, and natural gas is growing fast. So you have to secure your energy supply from different regions. It could create political or social problems if you don’t have enough supply.’

‘But renewable energy is different,’ he continues. ‘It’s a domestic energy source. It could produce energy within your territory which is controllable.’

With economic growth thus far built on the back of a readily available indigenous resource – i.e. coal – the government is keen to exploit its other domestic resources, rather than put China’s future economic growth at the mercy of the global commodities markets.

In addition, renewable energy has been identified as a strategic new industry for China, alongside computer science, information technology, and biotechnology. The government believes that these new industries could have long-term economic benefits if it promotes them now.

This is borne out by data from IRENA, which suggests that with 3.3 million people employed by the renewables industry, China hosts nearly half of the estimated 7.6 million jobs in the global renewables sector. Most of these are in the solar PV and heating sectors, followed closely by wind.

Several key challenges remain

However, renewable power still faces a number of key challenges, the largest of which is grid access. While China’s wind power capacity levels have increased significantly, generation has not grown so quickly, as turbine installations outstrip available grid connections, leaving 10% of China’s new onshore wind capacity stranded in 2013.

Moreover, grid congestion for those wind farms which are connected remains a major problem, with curtailment in 2013 at the 11% mark. Utility-scale solar PV experiences similar problems with congestion, which has prompted the government to lower the subsidy level for large-scale solar, and direct more resources towards local distribution networks.

Part of the issue stems from the fact that China’s best wind and solar power resources are located in the north and the west of the country, away from the demand centres in the coastal regions of the southeast, in areas which are comparatively less developed.

According to the IEA, problems with congestion and grid access are easing year on year. This will be further helped by the State Grid Corporation of China’s (SGCC) plan to invest US$100 billion by 2017 in building 20 ultra-high-voltage (UHV) lines from key generation locations to the demand centres. But experts believe that the SGCC will struggle to keep up with the pace of renewable energy development.

Renewables need strategic planning

‘It comes back to the issue that there is no strategic planning,’ says Oxford’s Xin Li. ‘Renewable energy is an area that a lot of people are focusing on, but the grid issue is another area that is somehow separated from the renewable energy area.’

‘The government has already realised the problem,’ Li continues. ‘But it takes time to fix. It takes a lot of investment and a lot of work to be done.’

Dr Neil Wang, managing director of Frost & Sullivan’s Greater China unit, notes that China is still touting for a solution to operational issues caused by high levels of penetration of variable renewables.

‘In the past five years the State Grid has actively promoted the establishment of the electric power storage system to cope with the difficulties, but the technology bottleneck and the high cost of batteries mean that it will be difficult to have a breakthrough in the short term,’ he tells Renewable Energy Focus.

Risky investment leading to caution

In addition, investment in China’s renewable power – especially wind and solar – has proved to be riskier than anticipated. Although costs have decreased, the levelised cost of energy is still higher than that of coal, and the industry is still dependent on subsidy. And revenues have been affected by delays to subsidy payments to renewable generators from central government.

This problem is compounded by enforced curtailment, caused by some power suppliers refusing access to the grid for wind and solar. While renewable energy should in theory be given priority dispatch, in practice many power suppliers are reluctant to do so, preferring to rely on coal.

As many of China’s renewables developers are state-owned utilities with mandatory renewables targets, they will continue to invest, but private investors may be more cautious in future.

‘It has damaged their interest in renewable energy,’ says Oxford’s Li. ‘You never know if or when you will have a delayed payment. If investors get into the market and then find that they cannot get paid in time, these investors will probably not invest any more.’

Cost still a major barrier

Meanwhile, large-scale enterprises such as offshore wind, tidal power, and concentrated solar power (CSP) face considerable barriers to development, despite the potential for deployment near the southeastern demand centres.

Chief among these barriers is cost, especially in the case of offshore wind, which costs double that of onshore wind per kWh and holds only one-tenth of the potential deployment capacity. The IEA estimates that China will have 4.5 GW of offshore wind by 2020 (up from 0.5 GW now) compared to 209 GW of onshore wind.

China has also been looking closely at the UK’s nascent tidal power industry. Earlier this year it announced plans to invest in a 320 MW demonstration project in Swansea Bay, with a view to potentially rolling out the technology in China once it becomes commercialised.

Offshore wind and tidal power now have the benefit of a slightly higher feed-in tariff, introduced by the government in 2014, but the IEA notes that administrative challenges will probably deter developers from taking it up.

Easing market regulation

A key to the development of offshore wind will be a relaxing of China’s heavily regulated domestic power market, which commands a single coal-benchmarked price for power, as well as a premium for renewables, says Oxford’s Li. If customers in the coastal regions are prepared to pay a higher price for offshore wind which can be located comparatively near, then it may yet take off.

However, according to Frost & Sullivan, no obvious breakthrough in offshore wind development can be expected in the next five years, due to licensing issues and the relatively immature supply chain.

Demand still growing for renewable power

But investors will take heart in the robust demand projections for renewable power, despite China’s recent economic slowdown. GDP growth has now slowed to 7.7%, down from double digits in 2007, but China remains the second-largest economy in the world. Energy demand grew by 2.6% in 2014 – equivalent to the entire energy consumption of Malaysia – and according to most projections, the majority of new energy demand is set to be met by renewables.

Indeed, in 2014 coal demand decreased for the first time, by two percentage points, while the growth in consumption of natural gas and oil is also slowing down. Oxford’s Li says that this gives renewables enough room to grow by up to 10% each year.

In the long term, much will depend on the outcome of the Paris climate change talks (COP21) in December 2015: whether China is prepared to commit to binding carbon reduction targets, and to what extent.

But, with a non-binding commitment to start reducing its carbon emissions from 2030, and a stated desire to make the best of its indigenous resources, China’s love affair with renewables is likely to be a lasting one.

Rachel Parkes is a freelance journalist and copywriter, with expertise in the Energy and Environment fields. She is a long-time contributor to Renewable Energy Focus magazine. Read Part I of this feature online.

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